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Dispute over whether narrow reading dulls SOX retaliation rules

Two ex-employees hoping to revive whistleblower claims against Fidelity Investments argue that Fidelity’s narrow reading of the Sarbanes-Oxley Act would render the statute’s prohibition against retaliation by contractors and subcontractors meaningless. SeeReply Brief for Petitioner, Lawson v. FMR LLC, No. 12-3 (U.S. Oct. 30, 2013. The Supreme Court agreed in May to hear this appeal of a First Circuit ruling finding that a person who works for a privately held company is not an “employee” under SOX’s whistleblower language, even if that private company is a contractor for a company that is covered by the whistleblower clause. In their brief, the ex-employees asserted that there are few, if any, real-world scenarios in which a contractor or subcontractor could retaliate against an employee of a public company with whom it had contracted to do work, so the statute should not be construed as protecting only public company employees from retaliation by contractors. Further, the history of the statute did not support such a narrow reading given that SOX was enacted in response to the collapse of Enron, but the First Circuit’s interpretation would have left whistleblowers accountants at Arthur Andersen outside the law’s scope. Fidelity asserted in its oppositionthat the First Circuit correctly held that SOX’s text, structure, history, and purpose mean that the whistleblower protections only cover employees of public companies. See Brief for Respondents, Lawson v. FMR LLC, No. 12-3 (U.S. Sept. 30, 2013). The Supreme Court recently heard oral argument.Transcript of Oral Argument, Lawson v. FMR LLC, No. 12-3 (U.S. Nov. 12, 2013). Justice Breyer asked whether the former employees’ interpretation would make “every mom and pop shop in the country… suddenly subject to the whistleblower protection for any fraud even those frauds that have nothing to do with any publicly traded company,” and whether the broad interpretation would mean that even household employees of a company’s officers could be protected, while Justice Alito asked whether the First Circuit’s interpretation was contrary to Congress’ intent as it would limit SOX’s application solely to the rare situation where a public company hires an “ax-wielding specialist” to retaliate against a whistleblower. The Supreme Court is expected to issue a decision by Spring.